Is Suncor Energy Inc. Better Off After the Oil Crash?

As oil continues to move higher, investors are slowly preparing for another era of high energy prices. The previous plunge, however, still has a pervasive impact on the industry. Capital expenditures remain depressed, insolvencies are still a threat, and layoffs continue to shed thousands of jobs. Not everyone is in trouble though. Bucking the trend, there’s a strong argument that Suncor Energy Inc. (TSX:SU)(NYSE:SU) is actually better off after the crash. Renewed optimism for long-term potential In June, analysts at Citigroup Inc. upgraded Suncor to “buy,” raising its price target from $40 to $44. Shares still trade under $40, so if their estimates are…

To keep reading, enter your email address or login below.

Register by giving us your email below to continue reading all of the content on the site. Also receive a free Email Newsletter from the Motley Fool. (You may unsubscribe any time.)

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls.
I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.

As oil continues to move higher, investors are slowly preparing for another era of high energy prices. The previous plunge, however, still has a pervasive impact on the industry. Capital expenditures remain depressed, insolvencies are still a threat, and layoffs continue to shed thousands of jobs.

Not everyone is in trouble though. Bucking the trend, there’s a strong argument that Suncor Energy Inc.(TSX:SU)(NYSE:SU) is actually better off after the crash.

Renewed optimism for long-term potential

In June, analysts at Citigroup Inc. upgraded Suncor to “buy,” raising its price target from $40 to $44. Shares still trade under $40, so if their estimates are correct, further upside is in store.

Why did Citigroup feel it necessary to recommend buying shares even while the industry remains under pressure? The biggest reason is rising production. While most competitors have slashed production budgets and many more face falling output, Suncor has driven billions into growing its business, especially its major projects.

Already this year, Suncor announced that it would acquire Canadian Oil Sands Ltd. for $6.9 billion as well as Murphy Oil Corporation’s 5% Syncrude stake for $937 million. Suncor now holds a majority 53.7% position in that project–the biggest oil sands operation in the world. In all, these two acquisitions alone should boost Suncor’s output by about 146,000 barrels a day.

On June 23, the company raised a hefty $2.9 billion, and it’s likely that this fresh financing will be put towards additional acquisitions, not paying down debt. The company plans to boost production to 800, 000 barrels a day in 2019 from less than 600, 000 barrels a day in 2015.

Ready to create value

While oil markets have rebalanced a bit, it’s still very much a buyers’ market. Smaller indebted operators have often been forced into bankruptcy with their assets sold at fire-sale prices. Even larger integrated producers have been looking to sell major assets to streamline their businesses and reduce debt.

For example, the North Sea is seeing a flurry of selling pressures. According to Reuters, “Royal Dutch Shell, BP, Total and others have put dozens of assets up for sale in the North Sea, which has been on the wane since the late 1990s. With many companies keen to sell assets in the region, Suncor could find compelling deals, sources said, adding it could buy in both the U.K. North Sea and Norwegian North Sea.”

The best option for oil

The ability to maintain a long-term outlook and buy discounted assets is a sure way to create value over the next decade. At present, Suncor estimates that it needs about $40 oil to cover both its operating expenses and dividend. That means that at current prices, Suncor is in the sweet spot, maintaining both profitability and its ability to buy assets on the cheap. While oil’s rebalancing is far from over, Suncor may be one of the few companies to actually benefit from the crash.

Stock buy alert hits astounding 96% success rate!

The hand-picked investing team inside Stock Advisor Canada recently issued a buy alert for one special type of "bread-and-butter" stock where The Motley Fool U.S. has banked profits on 23 out of 24 recommendations. Frankly, with an astounding 96% success rate that has delivered average returns of 260%, chances are this new pick could deliver life-changing returns as well. Because the team at Stock Advisor Canada fully embraces the same time-tested investing philosophies that have led to countless Motley Fool winners globally. So simply click here to unlock the full details behind this new recommendation and joinStock Advisor Canada.

*96% accuracy includes restaurant stock recommendations from Motley Fool U.S. services Stock Advisor, Rule Breakers, Hidden Gems, Income Investor and Inside Value since each services inception. Returns as of 5/27/16.

Fool contributor Ryan Vanzo has no position in any stocks mentioned.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.